The Motley Fool: Warren Buffett’s Annual Meeting

Every year, tens of thousands of shareholders descend upon Omaha, Nebraska, to attend the annual meeting of Warren Buffett’s company, Berkshire Hathaway. Here’s some wisdom dispensed at the latest meeting, held May 3:

On tariffs: Buffett said that “trade should not be a weapon.” He also said that “we should be looking to trade with the rest of the world, and we should do what we do best, and they should do what they do best,” and “I do not think it’s a great idea to try and design a world where a few countries say, ‘ha, ha, ha, we’ve won,’ and other countries are envious.”

On work goals: “You really want to work at something you enjoy. … If you find people that are wonderful to work with, that’s the place to go. … Don’t worry too much about starting salaries, and be very careful who you work for because you will take on the habits of the people around you.”

On stock-market volatility: “That’s part of the stock market, and that’s what makes it a good place to focus your efforts if you’ve got the proper temperament for it, and a terrible place to get involved if you get frightened by markets that decline and get excited when stock markets go up. … I know people have emotions, but you’ve got to check them at the door when you invest.”

On being prepared: Buffett’s heir apparent, Greg Abel, said: “While we’re looking at opportunities … we want to act quickly, but never underestimate the amount of reading and work that’s being done to be prepared to act quickly. We know that when the opportunity presents itself, whether it be [buying stocks] or private companies, we’re ready to act, and that’s a large part of being patient – using the time to be prepared.”

Buffett, now 94, announced at the meeting that he will step down as CEO at the end of the year, after 60 years. Abel will become CEO and Buffett will remain chairman, available to offer advice.

Ask the Fool

Q: Can you explain what mutual funds are? – T.P., Akron, Ohio

A: Sure. A mutual fund is the pooling of many investors’ money, which is then managed by financial professionals.

In passively managed funds such as index funds, the managers simply aim to own the same securities in the index that the fund tracks, in roughly the same proportion, aiming for roughly the same returns. (S&P 500 index funds are a good example of this.) With actively managed funds, managers study and select investments, deciding when to buy and sell them.

Some mutual funds are focused on one kind of asset, such as stocks or bonds, and some invest across asset classes. Some funds focus on generating income for investors via dividend-paying stocks, while others focus on growth stocks or seemingly undervalued companies. Other funds specialize in certain sectors (like technology or health care) or global regions. There are many thousands of mutual funds in the United States alone.

Note that mutual funds charge fees, which can vary widely. For best results, favor funds with low fees and avoid most funds that charge “loads” (which are extra sales fees). Index funds often charge very low fees and can be great ways to build wealth over time. Indeed, they generally do better than most managed mutual funds. Per S&P Dow Jones Indices, over the past 15 years, the S&P 500 index outperformed 89.5% of all large-cap mutual funds, and over the past decade it outperformed 84.3%.

Q: What’s “profit-taking”? – I.C., Sierra Vista, Arizona

A: The term refers to the selling of investments for a gain. You might hear that a certain stock is down due to profit-taking if many investors have sold it recently.

My Smartest Investment

In a previous issue, you shared the story of a firefighter who saved money throughout his working life. Good for him! I was a police officer and earned $90 a week beginning in 1961. I retired years later earning a whopping $44,000 annually. In between, I had six kids, sent them to parochial schools, sent them to college and married them off. I was in debt, even though I always worked two jobs. I have no savings – but I have great memories and family that is worth so much more. – John, Parma, Ohio

The Fool responds: You’re right that life is about much more than money! Creating a strong, happy family is a great investment.

You worked hard to provide for your children. For anyone in the same situation – raising kids and perhaps finding each day full with here-and-now things – we advise also keeping an eye on your retirement future. Do what you can to avoid high-interest debt, and put money aside for when you won’t have a paycheck and medical bills might be higher.

If you’re deciding between spending on your children and saving for your retirement, don’t automatically choose your children; plan for your own financial future and help them grow up to be able to plan for theirs.